Stock Indices Plunge / How to guage Trend

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It’s hard not to make the stocks the focus of our blog again today. We are just a bit through the midway point of the day and the indices are down sharply. It is virtually a double reverse with today reversing the strong rally following the GDP figures which had reversed the sizable losses of Wednesday’s action.

The S&P 500 and the NASDAQ Composite and 100 are back below their respective 50 day moving averages and below the major up trend lines dating back to the March ’09 lows. The Dow Jones Industrials have now reached the 50 day moving average for the first time since testing it October 2.

The NASDAQ has become the weakest of the three majors. The Composite is now very near the October 2 correction low. Also of interest is the Dow Transportation Index which has made its downward turn before these others. It may have signaled a double top confirmation by falling below the low made between its two highs of September 17 and October 21. There are other lows in this price area from August 17 and September 2 that may provide an obstacle to further decline; at least for the near term. And as far as the double top, there may be a possibility this formation in the Transports could morph into a complex double headed Head and Shoulders top. But at this point in time that will be left to the crystal ball gazers.

The October 2 correction lows we believe are the next significant barometers.

We realize there is still time to go in this week ending session but we find this type of action negative and believe spells lower prices yet to come.

We are including here our S&P 500 market section from our Trade Focus written Thursday 10/22/09:

S&P 500 (Dec. EMini) – Last week we presented a short entry approach that would have been elected with the intraday penetration of 106625. The December contract proceeded to a low of 103725 today (Thurs.) before its sharp rally to close at 106150. We believe stop protection for this short entry can be lowered to intraday penetration of 109350 or a close at or above 109025. We believe we can keep the other new or additional short entry approach from last week also which is to initiate short entries with a close at or below 101150. Stop protection for this short entry approach should be intraday penetration of 105725. Retracement resistance levels are approx.: 106085 (hit); 106800; 107550.

Good luck and Great trading

Jeff and Diego

CB&S Division
MF Global Inc.

312 261-7380

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